Singaporeans today enjoy one of the longest life expectancies in the world. Today, the average person will live up to 83.5 years-old. More pertinently, for those heading towards retirement, those who are 65 can expect to live up to 86.2 years-old – or another 21.2 years after turning 65.
While this is a testament to our quality of healthcare and living, it also presents a new challenge: how do we make our money last as long as we do?
At the heart of Singapore’s solution for retirement adequacy is the CPF, which has served Singaporeans faithfully for 70 years – having been established in 1955. Its main purpose is to ensure every Singaporean has a basic level of retirement savings.
As Singaporeans continue to live longer, we must confront a simple but very hard truth: there are only three ways to have enough for retirement. We either save more, spend less, or retire later. This was reiterated by Senior Minister Lee Hsien Loong at the launch of CPF’s 70th Anniversary book.
Read Also: 3 Times During Economic Downturns When CPF Had To Cut Contribution Rates For Singaporean Workers
#1 Save More: Pay Your Future Self First
Saving more is the most straightforward way to build retirement adequacy. While easy to understand, it’s much more difficult in practice.
We can look at how CPF has had to make difficult changes to the scheme over the years. When it was introduced in 1955, the total CPF contribution rate was a modest 10% – split evenly between employer and employee.
Over time, as Singapore’s economy matured and incomes rose, CPF rates rose to ensure no Singaporeans were left behind in retirement. By 1986, CPF contribution rates peaked at 50%. But, this may have been too high and CPF contribution rates were subsequently dialled back during economic slowdowns.
Today, the target long-term rate is 37%, and further tweaks are being made to bring older workers’ contributions on par with younger ones.
As highlighted in the Save & Sound commemorative CPF book and SM Lee Hsien Loong’s speech at the launch, CPF has never been static – constantly evolving with the times. But even at its optimal level, CPF is designed to provide only basic retirement adequacy – not a higher standard of lifestyle. That’s why saving more voluntarily becomes essential.
If you’re used to dining out often, travelling frequently, or living in a larger home, the basic CPF LIFE payout may fall short of your desired retirement lifestyle. That’s where voluntary savings and investments come in. You can think of this as sharing your current income with your future self. By putting aside a portion of today’s earnings and having a more modest standard of living, you don’t have to downgrade your lifestyle in your retirement.
#2 Spend Less: Smoothen Out Your Lifestyle Over Time
The second lever to expanding your retirement pot is to spend less. Thankfully, the CPF system has built-in mechanisms to limit overspending at the wrong time.
In the past, CPF members could withdraw their entire savings at age 55. This was not unreasonable in an era when life expectancy was around 60. Today, this is far from the same case.
Singaporeans must now set aside their Full Retirement Sum (FRS) or at least the Basic Retirement Sum (BRS) in their Retirement Account. Only the amount in excess of these Retirement Sums can be withdrawn.
Read Also: BRS, FRS, ERS: Why There Are 3 CPF Retirement Sums & Why They Increase Every Year
This was a painful but necessary step in the mid-1980s. In 1987, the Minimum Sum Scheme was introduced, requiring CPF members to save a minimum sum before being able to withdraw the remaining CPF savings.
This change protects members from spending too much too soon. CPF LIFE, Singapore’s lifelong annuity scheme, was introduced in 2009 to make sure retirement payouts last for life, not just a fixed number of years.
This helps each generation of Singaporeans support their own retirement needs – instead of relying on the next generation to pay for it through taxes, as is the case in many Western pension systems.
Still, beyond CPF’s guardrails, individuals must actively make choices to spend less today, in order to live better tomorrow. This doesn’t have to equate to extreme frugality, but it simply means smoothing your consumption across your life.
Spend less when you earn the most, so that you don’t have to live drastically differently when you retire.
It’s easy to fall into the trap of “lifestyle inflation” when your earnings are going up in your working years – upgrading your car, home, and taking multiple vacations each year. But every dollar spent today is one less that can be compounded for your future.
Read Also: [Beginners’ Guide] Understanding CPF LIFE And Your Monthly Payouts When You Retire In Singapore
#3 Retire Later: Working Longer Gives You More Buffer
Alongside longer life spans, retiring later is not only increasingly realistic, but in many cases, necessary. This is also reflected in Singapore’s policies, including the CPF system.
For example, while CPF LIFE payouts can begin at age 65, you can choose to delay payouts until a maximum age 70. For every year you defer, your monthly payout increases by about 7%. If you delay to 70, you can expect to receive up to 35% more per month, for life.
This can make a huge difference – especially for those who are healthier, or who may not need the income right away.
Beyond the CPF system, Singapore’s employment laws have also evolved to support longer working lives. An official statutory retirement age of 60 was implemented in 1993. Before then, there was no official retirement age, and the norm of the time was for retirement to be at 55.
In 1999, the retirement age was raised to 62, and in 2007, then-PM Lee Hsien Loong stated that the retirement age would eventually be raised to 65 by 2030.
Singapore also has a re-employment age, which gives employees some re-employment protect up to 68. Similarly, this will rise to 70 by 2030.
Again, this reflects the reality that if we are living longer, we need to work longer. Retiring at 63 today and living till 86 means you must fund 23 years of retirement.
Working longer offers three main benefits: 1) Continued income to support your daily living expenses; 2) Rather than drawing down, you’re contributing even more CPF contributions; and 3) You have a longer runway for your CPF savings to compound.
Fortunately, many Singaporeans have the flexibility to determine retirement on your own terms today. You can always find flexible work and part-time employment even in your golden years. If you deem possible, there’s nothing to stop you from retiring early either.
CPF Savings Is Your Own Money
As SM Lee Hsien Loong shared in his speech at the CPF book launch, the CPF system has always been about self-reliance. You contribute to your own retirement adequacy and you know that your CPF savings is your own.
This policy of self-reliance extends beyond individuals too. Through CPF LIFE, each generation of Singaporeans will also support their own retirement needs – and not burden future generations through debt or taxes.
While the government has laid this foundation, empowering Singaporeans to plan, save and live with dignity in their retirement, individuals also have to play a big role in their own retirement plans.
The personal nature of retirement means that it can never just be dictated in policy, but will always be a function of personal choices. Whether you’re in your 30s, 40s, or even 50s, there’s no better time than now to think about retirement. With longer lives ahead of us, we must be equally long-sighted.
Read Also: Here’s What Your CPF Full Retirement Sum Might Look Like When You’re 55
